Method of computerized monitoring of investment trading and associated system

ABSTRACT

A method of computerized monitoring of investment trading includes providing historic trading data for a specific trader, selecting a plurality of trading parameters for the specific trader and obtaining current information regarding the selected parameters, and/or providing historic trading data and applying rules to the current information and/or historic trading data to determine if a rules violation has occurred. The system may be employed to monitor whether market timing of mutual fund investments has occurred. A corresponding computerized system is disclosed.

CROSS-REFERENCE TO RELATED APPLICATION

This application is a continuation of U.S. application Ser. No.10/860,714, filed Jun. 3, 2004, which claims the benefit under 35 U.S.C.119(e) of U.S. Provisional Application Ser. No. 60/564,848, filed Apr.23, 2004, all of which are hereby incorporated by reference herein intheir entirety for all purposes.

FIELD OF THE INVENTION

The present invention relates to a method and associated system forcomputerized monitoring of investment trading and more specifically itrelates to a system which as to a specific trader and a specificinvestment obtains current information regarding selected tradingparameters and compares it with historic trading data regarding the sameand applies rules to determine if a violation of the rules has occurred.

DESCRIPTION OF THE PRIOR ART

It has long been known to employ computerized systems to process data,store the same and provide for output and various formats as desired. Itis also been known to use the same for investment purposes. See, forexample, U.S. Pat. Nos. 5,749,077 and 5,893,079.

In recent years, the need for a system to provide more effective andtimely monitoring of investment activities has become acute. Morespecifically, numerous instances of improper conduct have resulted from“market timing” in the trading of mutual funds. For example, individualshave been known to engage in frequent purchases of mutual funds in largequantities at an early phase of an upward movement of the market andselling the same after a brief elapsed period as the market movesupward. The frequency of such transactions has reached the point in manyinstances of being burdensome on the mutual fund. The mutual fund mustat times be forced to sell investment securities at a less thanpreferred time in order to reimburse such traders for their sizableredemptions. Also, the increased trading volume increases the mutualfund's transaction costs. This results in smaller investors being hurtas the market timing traders deprive the mutual fund of doing the mostefficient job of maximizing the return for other investors. In addition,there have been instances of late trading involving transactions whichwere permitted to occur illegally after the market had closed, therebypermitting the individuals engaging such trading to take advantage oflate-breaking news in anticipation of the response by the market uponopening the next day.

There remains, therefore, a real and substantial need for an effectiveautomated system which can monitor on a rapid and reliable basisimproper market timing behavior.

SUMMARY OF THE INVENTION

The present invention has met the above described need. It provides amethod by which computerized monitoring of investment trading may beaccomplished in a rapid, efficient and accurate manner by providinghistoric trading data for a specific trader, selecting a plurality oftrading parameters for the specific trader and obtaining currentinformation regarding those selected parameters followed by reviewingthe current information and/or the historic trading data and thendetermining whether any of the rules employed in the method have beenviolated based upon the current information and historic trading data.In a preferred embodiment, the rules are applied to the currentinformation and the historic trading data after comparison of the twocategories of information. In the event of a violation of the rules, anappropriate alarm report is emitted.

The method and system may advantageously be employed in monitoring aspecific trader with respect to a specific investment such as a mutualfund, for example, to determine whether improper market timing hasoccurred.

Various forms of trading parameters including pattern recognition areprovided as a preferred means for monitoring such activity.

The computerized system of the present invention includes the datareceiving interface for receiving trading data and organizing itaccording to the specific trader and specific investment. A server isstructured to receive the organized trader- and investment-specific datafrom the receiving interface as well as providing an historical dataunit to deliver data to the server. The server is structured to receiverules which govern permissible conduct and to compare the rules with thecurrent information and historic data in making a determination as towhether a departure from acceptable trading conduct has occurred.

It is an object of the present invention to provide a computerizedmethod and system for efficiently, accurately and promptly monitoringselected trading parameters in order to determine if a violation fromthe rules has occurred.

It is another object of the present invention to provide such a systemwhich is structured to focus on a specific trader and within thatspecific trader's activities a specific investment and the trader'sconduct with respect to the same over a period of time.

It is another object of the present invention to permit the rules to berevised by the user so as to alter the standards.

These and other objects of the invention will be more fully understoodfrom the following description of the invention with reference to thedrawings appended hereto.

BRIEF DESCRIPTION OF THE DRAWINGS

FIG. 1 is a flow diagram showing a form of method of the presentinvention.

FIG. 2 is a schematic diagram illustrating a form of computerizedapparatus of the present invention.

DESCRIPTION OF THE PREFERRED EMBODIMENTS

As employed herein, the term “investments” shall expressly include, butnot be limited to, mutual funds, common and preferred shares of stock,whether listed on an exchange or not, high-yield corporate bonds andhigh-grade corporate bonds, municipal bonds, United States bills, notesand bonds, mortgage-related investments and short-term securities suchas commercial paper, banker's acceptances, repurchase agreements andsupporting currencies.

As employed herein, the term “trading parameters” means one or moreunits of information relevant to investment trading in one or moreinvestment products and shall expressly include but not be limited totransaction date, transaction time, price, product identity, traderidentity, investment identity, trading volume and investment pricehistory.

As employed herein, the term “historic trading data” means as to aspecific trader, specific details regarding the trading record of thattrader in respect of both sales and purchases including but not limitedto the investment, the number and value of the specific investment, asto each trade the investment date and amount, with respect to sales,profit both before and after commissions and with respect to investmentsheld, the return on investment before commissions, after commissions andannualized, patterns of trading, profitable trades, elapsed time betweentrades, number of market timing trades, trader trading history, dollarvolume of market timing trades, percentage of market timing trades toall trades, trading patterns and selected critical days.

As employed herein, reference to “sub account” or “detail account” shallmean trader account information which may include one or more of thefollowing: shareholder registration information, broker information,holding information and asset position information.

As employed herein, “omnibus account” refers to a large group ofinvestors that are reported as a single account and an “omnibus trade”is a trade against an omnibus account.

As employed herein, a “detail trade” is a trade against a detailaccount.

The present invention provides means for isolating a trader and specificinvestment. The term “trader” embraces not only an individual trader whois the holder of an account, but also others to be monitored in asimilar manner in respect of trading activity such as brokers, accountrepresentatives and account managers, for example. It includesgenerating a database of historical trading data regarding the specifictrader as well as obtaining current information on a plurality oftrading parameters which can be compared with the historical data. Thetrading parameters are preferably selected to correspond to the rulesemployed. Automated application of rules is employed to determine if aviolation of the rules, such as market timing activity, has occurredwith appropriate communications being emitted when such departure fromrules has been determined to exist.

A preferred form of the method of the invention is illustrated in theflow diagram of FIG. 1 wherein a plurality of data packets representedby trading parameters 1-n, trading reference numbers 4,6,8,10 are allprocessed 20 to provide current trading information regarding a specifictrader. This information is not only delivered to the historic data forcombination therewith 24 at 26, but also is subjected to a comparisonbetween the current information and the historic trading data 30. Thisinformation is then subjected to application of the rules in order todetermine if a departure from the rules exists. The rules 36 whichgovern the method of evaluation or detection may he revised by the useror others permitted to do so 38 and then are provided in their currentform for the comparison 34. The next block indicates the issue ofwhether a rules violation has occurred 44. If the answer is “no”, thatis the end 48 of that cycle of the process. If the answer is “yes”, thenan alarm report is delivered 50 and the existence of this departure isdelivered to the historic data 29 for the specific trader 24. This cycleis repeated 60 with a predetermined frequency as determined by the user.

While the preferred practice of the invention involves making acomparison of the current information with the historic trading data, insome instances one may avoid the comparison and employ solely thecurrent information or historic trading data in applying the rules.

The rules 36 may be modified and corresponding changes made in thetrading parameters 4, 6, 8, 10 to facilitate efficient monitoring.

It will be appreciated that the historic trading data containsinformation regarding patterns of trading, times of trading, particularcritical days and relationship to trading as well as the foregoingsummarized information.

Some of the rules may relate to preferred practices of a user such as amutual fund, brokerage, broker, dealer, government agencies, or othersinvolved in the investment community, while others might relate todetermination of improper conduct such as market timing.

Referring to FIG. 2, there is shown apparatus employable with thepresent invention. Sources of trading data 70, 72, 74, 76, which arestructured to provide trading parameters with respect to a specifictrader and specific investment, deliver data to the interface 80 whichprocesses the current trading parameter data for the specific trader anddelivers it to the server 86. Server 86 also receives historic tradingdata from historic data unit 90 and the rules form rules unit 92. Theserver 86 compares the current trading parameter data with the historictrading data which is then evaluated in respect of the rules withinformation being emitted through interface 96 to update the historicdata unit 90 and to deliver information to the user as by terminals 100,102 as well as providing a storage unit 104. If desired, storage can bewithin the server 76.

Also, apart from the reports which may have any desired format andcontent and which are emitted from the server 86 through interface 96, auser may access the information in a conventional manner.

Various forms of reports may he employed and the information may beprovided in such a manner that multiple information units can heprovided on a single terminal screen. Also, if desired, hard copy may beobtained by a conventional printer.

The server 86 may be structured to conduct statistical, probabilistic,heuristic, pattern-matching analysis of data in order to detect eventsof interest in respect of the trading activity of the selected traderwith respect to one or more of his or her investments.

The system preferably has within the server 86 the capability ofdelivering results through at least one of the group consisting of html,xml, xbrl, spreadsheets and comma-separated files.

The invention may be structured to permit or prohibit an end user'sviewing in a report or other format underlying detail trades or theomnibus trade.

While a primary focus herein in respect of monitoring for “markettiming” has been on mutual fund transactions as this is currently amajor problem, the invention is equally applicable with respect to other“investments” as defined herein.

The method and system of the present invention can monitor sub accounts(detail accounts) and omnibus accounts including detection of markettiming with respect to each.

It will be appreciated therefore that the present invention provides amethod and associated apparatus for the efficient, rapid and accurateprocessing of current trading parameter or trading data in respect of aspecific trader and a specific investment, automated comparison of thesame with the corresponding historical trading data followed by anapplication of rules to the same to determine whether there has been adeparture from the rules and responsive action if such is found toexist.

Whereas particular embodiments of the invention have been disclosedherein for purposes of illustration, it will be evident to those skilledin the art that numerous variations of the details may be made withoutdeparting from the invention as defined in the appended claims.

1. A computerized system for monitoring investment trading of shares of at least one mutual fund comprising: at least one computer having a computer tangible readable medium having stored thereon software instructions executable by a processor of the computer, comprising: code to provide at least one rule of the at least one mutual fund to monitor at least one trading activity of at least one specific trader associated with at least one trading transaction in at least one omnibus account, involving the shares of the at least one mutual fund, to determine at least one trading violation of the at least one rule of the at least one mutual hind, wherein the at least one trading violation is capable of having at least one a negative effect on at least one aspect of managing the at least one mutual fund and wherein the at least one specific trader is at least one of: i) at least one holder of at least one account associated with the at least one trading transaction involving the shares of the at least one mutual fund, ii) at least one broker associated with the at least one trading transaction involving the shares of the at least one mutual fund, iii) at least one account representative associated with the at least one account associated with the at least one trading transaction involving the shares of the at least one mutual fund, or iv) at least one account manager associated with the at least one account associated with the at least one trading transaction involving the shares of the at least one mutual fund; code to obtain, for the at least one omnibus account, current trading data of the shares of the at least one mutual fund; code to process, for the at least one omnibus account, the obtained current trading data of the shares of the at least one mutual fund to identify current trading data for the at least one first specific trader, wherein the identified current trading data for the at least one first specific trader comprising at least one first current trading transaction in the at least one omnibus account, wherein the at least one first current trading transaction is associated with the at least one specific trader and involves the shares of the at least one mutual fund; code to obtain historic trading data for at least one first specific trader, wherein the obtained historic trading data for the at least one first specific trader comprising at least one first past trading transaction which is associated with the at least one first specific trader and involves the shares of the at least one mutual fund; code to determine, in the at least one omnibus account, at least one first trading violation in at least one trading activity of the at least one first specific trader, wherein the determination is based at least in part on: comparing at least first portion of the identified current trading data for the at least one first specific trader, at least second portion of the obtained historic trading data for the at least one first specific trader, or any combination thereof, with the at least one rule of the at least one mutual fund to detect, in the at least one omnibus account, at least one event of interest in the at least one trading activity of the at least one first specific trader, wherein the at least one rule of the at least one mutual fund comprises at least one standard defined by the at least one mutual fund, and wherein the least one of the standard comprises at least one market timing condition that allows to determine, in the at least one omnibus account, based at least in part on the at least one event of interest in the at least one trading activity of the at least one first specific trader, whether the at least one first specific trader has violated at least one market timing rule of the at least one mutual fund, by being associated with (1) at least one purchase transaction, which involves at least one purchase of shares of the at least one mutual fund, and (2) at least one sale transaction, which involves at least one sale of at least a portion of the purchased shares before a period of time specified by the at least one market timing condition has expired; and code to output, for the at least one omnibus account, the determined at least one first trading violation of the at least one rule of the at least one mutual fund by the at least one specific trader.
 2. The computerized system of claim 1, further comprising code to compare both the at least a first portion of the identified current trading data for the at least one first specific trader and the at least a second portion of the obtained historic trading data for the at least one first specific trader with the at least one rule of the at least one mutual fund.
 3. The computerized system of claim 1, further comprising code to compare the at least first portion of the identified current trading data for the at least one first specific trader and the at least second portion of the obtained historic trading data for the at least one first specific trader before comparing the at least first portion of the identified current trading data for the at least one first specific trader and the at least second portion of the obtained historic trading data for the at least one first specific trader with the at least one rule of the at least one mutual fund.
 4. The computerized system of claim 1, wherein the code to process the obtained current trading data of the shares of the at least one mutual fund further comprising code to process the obtained current trading data of the shares regarding at least one specific mutual fund, and wherein the code to obtain current trading data of the shares of the at least one specific mutual fund further comprising code to receive the obtained current trading data in the form of a plurality of trading parameters specifically related to the at least one first specific trader.
 5. The computerized system of claim 4, including the plurality of trading parameters including trade date and time.
 6. The computerized system of claim 4, including the plurality of trading parameters including at least one specific account and at least one transaction price.
 7. The computerized system of claim 1, including the at least one rule of the at least one mutual fund being structured to at least determine if at least one specific trading pattern has existed.
 8. The computerized system of claim 1, wherein the software instructions being structured to assign and track the at least one omnibus account differently from an underlying detail account.
 9. The computerized system of claim 1, wherein the at least second portion of the obtained historical trading data for the at least one first specific trader being structured to contain sub account information.
 11. The computerized system of claim 1, wherein the at least one specific pattern is in respect of higher- or lower-than-expected volumes of trading in the at least one mutual fund by the at least one first specific trader.
 12. A computerized method for monitoring investment trading of shares of at least one mutual fund comprising: providing, by at least one programmed computer, at least one rule of the at least one mutual fund to monitor at least one trading activity of at least one specific trader associated with at least one trading transaction in at least one omnibus account, involving the shares of the at least one mutual fund, to determine at least one trading violation of the at least one rule of the at least one mutual fund, wherein the at least one trading violation is capable of having at least one negative effect on at least one aspect of managing the at least one mutual fund and wherein the at least one specific trader is at least one of: i) at least one holder of at least one account associated with the at least one trading transaction involving the shares of the at least one mutual fund, ii) at least one broker associated with the at least one trading transaction involving the shares of the at least one mutual fund, iii) at least one account representative associated with the at least one account associated with the at least one trading transaction involving the shares of the at least one mutual fund, or iv) at least one account manager associated with the at least one account associated with the at least one trading transaction involving the shares of the at least one mutual fund; obtaining, by at least one programmed computer, for the at least one omnibus account, current trading data of the shares of the at least one mutual fund; processing, by at least one programmed computer, for the at least one omnibus account, the obtained current trading data of the shares of the at least one mutual fund to identify current trading data for at least one first specific trader, wherein the identified current trading data for the at least one first specific trader comprising at least one first current trading transaction in the at least one omnibus account, wherein the at least one first current trading transaction is associated with the at least one specific trader and involves the shares of the at least one mutual fund; obtaining, by at least one programmed computer, historic trading data for the at least one first specific trader, wherein the obtained historic trading data for the at least one first specific trader comprising at least one first past trading transaction which is associated with the at least one first specific trader and involves the shares of the at least one mutual fund; determining, by at least one programmed computer, in the at least one omnibus account, at least one first trading violation in at least one trading activity of the at least one first specific trader, wherein the determination is based at least in part on; comparing at least a first portion of the identified current trading data for the at least one first specific trader, at least second portion of the obtained historic trading data for the at least one first specific trader, or any combination thereof, with the at least one rule of the at least one mutual fund to detect, in the at least one omnibus account, at least one event of interest in the at least one trading activity of the at least one first specific trader, wherein the at least one rule of the at least one mutual fund comprises at least one standard defined by the at least one mutual fund, and wherein the at least one of the standard comprises at least one market timing condition that allows to determine, in the at least one omnibus account, based at least in part on the at least one event of interest in the at least one trading activity of the at least one first specific trader, whether the at least one first specific trader has violated at least one market timing rule of the at least one mutual fund, by being associated with (1) at least one purchase transaction, which involves at least one purchase of shares of the at least one mutual fund, and (2) at least one sale transaction, which involves at least one sale of at least a portion of the purchased shares before a period of time specified by the at least one market timing condition has expired; and outputting, by at least one programmed computer, for the at least one omnibus account, the determined at least one first trading violation of the at least one rule of the at least one mutual fund by the at least one specific trader.
 13. The computerized method of claim 12, further comprising comparing, by at least one programmed computer, both the at least first portion of the identified current trading data for the at least one first specific trader and the at least second portion of the obtained historic trading data for the at least one first specific trader with the at least one rule of the at least one mutual fund.
 14. The computerized method of claim 12, further comprising comparing, by at least one programmed computer, the at least first portion of the identified current trading data for the at least one first specific trader and the at least second portion of the obtained historic trading data for the at least one first specific before comparing the at least first portion of the identified current trading data for the at least one first specific trader and the at least second portion of the obtained historic trading data for the at least one first specific trader with the at least one rule of the at least one mutual fund.
 15. The computerized method of claim 12, wherein the processing the obtained current trading data of the shares of the at least one mutual fund further comprising processing, by at least one programmed computer, the obtained current trading data of the shares regarding at least one specific mutual fund, and wherein the obtaining current trading data of the shares of the at least one specific mutual fund further comprising receiving, by at least one programmed computer, the obtained current trading data in the form of a plurality of trading parameters specifically related to the at least one first specific trader.
 16. The computerized method of claim 15, including the plurality of trading parameters including trade date and time.
 17. The computerized method of claim 15, including the plurality of trading parameters including at least one specific account and at least one transaction price.
 18. The computerized system of claim 12, including the at least one rule of the at least one mutual fund being structured to at least determine if at least one specific trading pattern has existed.
 19. The computerized method of claim 12, wherein the at least a second portion of the obtained historical trading data for the at least one first specific trader being structured to contain sub account information.
 20. The computerized method of claim 19, wherein the at least one specific pattern is in respect of higher- or lower-than-expected volumes of trading in the at least one mutual fund by the at least one first specific trader. 